Did You Know? Retirement Planning Starts Earlier Than You Think

Most Filipinos only start planning for their retirement when they hit the golden age of 50. They feel that it is the most ideal period as that is when most major financial obligations would’ve been fulfilled or nearing fulfilment, such as paying off home mortgages, car loans, and college tuition.

However, most financial planning experts will actually tell you that the best time to prepare for your retirement is in your 20s, or as soon as you start earning income.

The best way to illustrate this point is by comparing two investors – one who started at 25 years old (Anne), and another who started at age 40 (Bryan). In our scenario, both will save the same amount (P1,000 a month), for the same number of years (15 years, or until when Anne is 40, and Bryan is 55), and with the same interest rate (6% p.a.).

However, despite the similarities, by the time they each reach 65 years old, Anne would’ve earned nearly a million pesos more (P1.3 million vs P550,000) than Bryan. Why? Because Anne would’ve had a longer investment period (40 years, from age 25 to 65) than Bryan (just 25 years, from age 40 to 65). This is the magic of compounded interest, coupled with the exponential factor of time.

Therefore, it pays (literally!) to start saving and investing for your retirement as early as possible!

With early retirement planning in mind, here are a few things you should accomplish before reaching 50:

1. Set retirement goals. Do you want a small farm when you retire? Or perhaps a beach house or a cottage nestled by the mountain ridge? Do you want to travel abroad and explore the world leisurely at least once a year with your family and your future grandchildren? It’s best to list your retirement goals this early -- and make them as specific and as concrete as possible -- so that you will know what you should look forward to.
   
   
2. Crunch the numbers. When you know what you want, it will be easier to know how much it will take to fulfill your retirement dreams. Will that one-hectare farm cost you P10 million? Is that beach house or mountainside cottage going to cost you at least P5 million? How much will it take your entire family to the United States for a vacation? More importantly, how much will you need on a monthly basis to maintain the lifestyle you want --food, groceries, utilities, transportation, etc.? The numbers will certainly add up.
   
   
3. Find the right investment tools. Once you know how much you have, your investment period and compound interest will now play its part. You will need to look for investment tools that can help you achieve your retirement goals. Need something longer-term? Perhaps some equity investments can boost your wealth accumulation. Need something more stable and less volatile? Perhaps bond investments will help you achieve your goals. One investment product that can help you with your retirement is BPI AIA's Dollar Protect Plus. Designed for long-term investing, Dollar Protect Plus gives you the option to invest in either global bond funds or global equity funds.
   
   
4. Diversify your investment tools. When choosing your investments, you should consider diversifying your mix. Complement government pension plans (e.g., SSS, GSIS) with private retirement plans. Similarly, non-liquid assets such as land, property, or real estate should be balanced with more liquid assets such as cash, money market funds, mutual funds, and the like. Stocks and equity investments should also have a healthy mix vis-a-vis bonds investments. Last but not least, investments in currencies outside of Philippine pesos should also be considered.
   
   The US dollar is one of the best foreign currencies to look into when diversifying your portfolio. It is the most accepted currency worldwide, aligns with international inflation, and weathers the risks of the stability of the Philippine peso.
   
   That’s why Dollar Protect Plus is a great investment option. It provides you convenient access to global markets and equities while getting USD-denominated protection here and abroad, and safekeeping your US dollars. Dollar Protect Plus not only helps you grow your money, but it also has the benefit of having life insurance coverage to protect you and your family from the unexpected.

To know more about Dollar Protect Plus and how BPI AIA can help you plan for your retirement, visit the BPI AIA website or go to any BPI branch and talk to a Bancassurance Sales Executive.